Statoil Holds $10 Billion in U.K. Expansion After Tax Jump

Statoil’s head of international development and production Peter Mellbye. Photographer: Dag Myrestrand/Bitmap via Bloomberg

March 29 (Bloomberg) -- Statoil ASA, Norway’s biggest
energy producer, put on hold a $10 billion plan to develop the
Mariner and Bressay fields in the U.K. and said it will be less
likely to buy British assets after a tax increase.

Statoil was developing the Mariner and Bressay heavy oil
fields off the U.K. and had scheduled production to start by
2017. The Stavanger-based company paid Nautical Petroleum Plc
87.5 million pounds ($140 million) for 21 percent of Mariner in
September, raising its stake to 65.1 percent.

The new taxes “are tremendously negative,” Peter Mellbye,
Statoil’s head of international development and production, said
yesterday in an interview in Oslo. “We had a concept that was
profitable, but a large part of this profitability has now been
lost through the tax increase, so we have to rethink whether we
can proceed with these projects.”

The U.K. last week raised taxes on oil production profit to
62 percent from 50 percent to pay for a lower consumer levy on
gasoline. It’s the third change in a decade that has seen the
state’s take double, Theepan Jothilingam, an analyst at Morgan
Stanley & Co., said in a note last week.

Statoil, which operates about 80 percent of Norway’s oil
and gas production, is counting on expanding abroad to counter
declining output at home. The company last year missed both its
initial and revised production estimates and in February cut its
output target for 2012 to about 2 million barrels of oil
equivalent a day, from a target of 2.06 million to 2.16 million.

The two U.K. fields have combined resources of about 600
million barrels, Mellbye said.

Job Creation

“So considerable investments, considerable job creation,
and an operational system we were going to build up in Aberdeen
-- all this has now been put on hold,” he said. “We were going
to award a feed contract now, and that has been postponed.”

Statoil is involved in exploration in about 21 licenses in
the U.K. and employs 243 people in the country, according to its
annual report.

The Office for Budget Responsibility expects the tax
increase will have “no significant impact” on investments and
production, Chairman Robert Chote told Parliament’s Treasury
Committee today. Edward Troup, a U.K. Treasury official, said
Statoil was postponing the decision, not the investment.

Greater Returns

“When there’s a change which has a significant fiscal
impact, the businesses affected will want to stop and think and
make sure their numbers work,” Troup said in parliament. “Our
own analysis shows that over next five years the post-tax return
per barrel of oil, and gas equivalent, to be greater than the
return over the last five years. We don’t think it will make a
material difference” on investment, he said.

A U.K. Treasury spokesman, who declined to be named in line
with government policy, also said the government would be
“happy to continue our dialogue with the oil industry.”

The Treasury pointed out that the March 23 budget said that
the government will consider extending tax breaks for spending
on marginal fields to recognize “the importance of continued
investment in the North Sea.”

The tax increase will lower the value of fields that are
being sold in the U.K., where deals have already been hampered
by the cost of dismantling decades-old platforms, analysts and
executives said.

‘Slam the Door’

“I know of one deal that stopped within half an hour of
that tax being announced,” Mike Tholen, economics and
commercial director at Oil & Gas U.K., said last week, declining
to specify the deal. “We had seen asset sales starting to
decline already when companies were worried about
decommissioning, and the uncertain tax regime makes it much
harder to work out prices.”

There are about $3 billion in assets for sale in U.K.
waters, according to PLS Inc.’s Mergers and Acquisitions
database. The biggest seller is BP Plc, seeking buyers for about
$1 billion in fields in the southern North Sea.

“They’ve wanted more developments offshore U.K. and then
they come and slam the door in our face,” Mellbye said. “There
are a lot of assets in the U.K. that aren’t all that interesting
anymore now.”

Statoil is partner with Eni SpA and Nautical Petroleum Plc
in the Mariner field, while Royal Dutch Shell Plc holds a stake
in Bressay.